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ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk

Marlowe Retail is deciding how to respond to a risk of supplier failure. It signs a contract with a second supplier so that supply continues if the first fails, while still using the first supplier. Which risk response does this represent, and which framework element does it fall under?

This is risk reduction through diversification, carried out at the risk response or treatment stage of the framework. Using a second supplier lowers the impact of failure while the business continues the activity, so it is not avoidance, acceptance or transfer through insurance.

  1. ARisk reduction through diversification, part of the risk response or treatment stageCorrect
  2. BRisk avoidance, part of risk identification
  3. CRisk acceptance, part of monitoring and review
  4. DRisk transfer by insurance, part of risk assessment

Explanation

Adding a second supplier lowers the likelihood and impact of supply disruption while continuing the activity, so it is risk reduction through diversification. This is carried out at the risk response or treatment stage of frameworks such as ISO 31000 and COSO ERM. It is not avoidance because the activity continues, and no insurance or acceptance is involved.

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